MGM Auditors Cast Doubt on Studio’s Future : Entertainment: Their year-end report to the SEC warns of losses and debts.
Auditors for the beleaguered MGM studio--citing net losses of $347.4 million for 1991, the company’s debt load and an absence of box-office hits--questioned anew on Tuesday the firm’s ability to survive.
In a statement accompanying MGM-Pathe Communications Co.’s year-end financial report to the Securities and Exchange Commission, the auditors also warned of the company’s exposure to ongoing lawsuits and the reluctance of its chief lender to formally commit to a long-term financing relationship.
“All of these conditions,” said the auditing firm, KPMG Peat Marwick, “raise substantial doubt about (MGM-Pathe’s) ability to continue as a going concern.”
It was the second straight year that MGM received a qualified opinion from its auditors. The studio is mired in debt from Italian financier Giancarlo Parretti’s purchase of the venerable studio from Kirk Kerkorian in 1990 and is still reeling from Parretti’s brief tenure.
“The qualified opinion is clearly damaging to the company going forward--if it’s taken too literally,” MGM spokesman Craig A. Parsons said.
The opinion and financial report only underscore the life-and-death sway held over MGM by its chief lender, Credit Lyonnais, the French government-owned bank that backed Parretti’s acquisition and fought for his ouster throughout much of last year.
MGM officials said the studio’s inability to complete a business plan or obtain a formal, long-term financing commitment from Credit Lyonnais before filing the 10-K report were the reasons for Peat Marwick’s refusal to give unqualified approval to the studio’s financial statements.
The officials also noted, however, that Credit Lyonnais is supervising the development of a business plan by MGM’s new management and has given no indication that it plans to withdraw its backing. And Credit Lyonnais continues to provide money for MGM’s day-to-day operations under the bank’s hand-picked team of executives.
The French bank’s exposure through its lending to MGM--a matter of controversy in the French Parliament--is immense. An accompanying 10-K report issued Tuesday by MGM-Pathe’s parent, Pathe Communications Corp., stated that Pathe is now in default on $592 million of its loans from Credit Lyonnais.
Pathe’s stock fell 12.5 cents on Tuesday to close at $1.875 in New York Stock Exchange trading, its 1992 low.
Dennis C. Stanfill, co-chairman and co-chief executive of MGM and Pathe, said Tuesday that he expects to maintain an ongoing relationship with Credit Lyonnais while the studio’s internal five-year business plan is completed.
“We have been working on it in close cooperation with the bank,” Stanfill said in an interview. “I would hope to complete it in the near future. I would expect it to merit the support of the bank.”
Indeed, a spokeswoman for Credit Lyonnais in New York said just last week: “We support management as it develops and implements a sound business plan. We have great confidence in the future of MGM.” The spokeswoman declined Tuesday to elaborate.
MGM-Pathe’s losses stem largely from litigation costs, interest payments and operating losses from movies and TV programming, including $76 million in write-downs on feature film releases.
Amid the losses, co-Chairman Alan Ladd Jr. was well compensated, the filings show.
Ladd--the Hollywood veteran who championed “Star Wars” when he led 20th Century Fox--received $4.5 million in 1991, according to MGM, including a $1-million “incentive bonus” for accepting the chairman and chief executive’s post when Parretti resigned last April.
Under contracts that run through 1994, Ladd and Stanfill each are guaranteed a salary of $2.5 million a year and a bonus of up to $750,000, along with stock options. Ladd also gets incentives tied to the performance of films.
Parretti received $831,000 in compensation between January and April of 1991, when he resigned under pressure from Credit Lyonnais, the studio said. “People can think of it as MGM, but in reality, it’s Credit Lyonnais Studio, in my opinion,” said Stephen Chrystie, a Century City bankruptcy attorney. Chrystie, after forcing MGM to the brink of involuntary bankruptcy last spring, recovered $175 million for a group of the studio’s Hollywood creditors.
According to Parsons, MGM plans to release nine movies in 1992; two films are in production and four are in pre-production.
With the exception of “Thelma and Louise,” most of MGM’s 1991 releases disappointed at the box office. Among them: “Rocky V,” “The Russia House,” “Shattered” and “Not Without My Daughter.”
Times staff writer Alan Citron contributed to this report.
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